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Gibson Brands Inc.

Gibson has a portfolio of over 100 well-recognized brand names starting with the number one guitar brand, Gibson.
Manufacturing website LinkedIn News
Manufacturer of Musical Instruments

PROFILE

Founded in 1894, Gibson is a global music and lifestyle-oriented company based in Nashville, Tennessee, creating products that enrich the lives of musicians, fans, and consumers alike. Gibson is known worldwide for producing classic models in every major style of fretted instrument, including acoustic and electric guitars, mandolins, and banjos. [From the website]

Gibson makes its electric guitars in U.S. factories in Nashville and Memphis, Tennessee and its acoustic guitars in Bozeman, Montana. It sells more than 170,000 guitars annually in more than 80 countries. [Reuters, May 1, 2018]

NEWS

10/24/2018: Appoints new CEO, and several new senior managers

The Company filed for Chapter 11 in May 2018, claiming half a billion dollar in debt and annual sales of over $100mn  and filed a Amended Plan of Reorganization ("Plan") on September 6, 2018 to exit from the bankruptcy process. The new owners - according to the WSJ - are funds owned by KKR.

When the amended Plan is confirmed and goes effective in the IVQ 2018, Henry Juszkiewicz will step down from his position as CEO and assume the role of consultant to the Company. Effective from September 6 2018, Brian Fox of Alvarez and Marsal, who has been working with Gibson since August 2017 and has served as Chief Restructuring Officer, will oversee Gibson's daily operations in his role as Chief Restructuring Officer until a CEO successor is appointed, while Mr. Juszkiewicz takes some time off before starting his consulting role. {From September 6, 2018 press release].

BDC Credit Reporter View

Only one BDC has exposure to the Company as of June 2018: Monroe Capital (MRCC). The BDC first advanced funds to the Company in the IVQ of 2017 when the business was already in financial distress. Total exposure is split between a Term Loan, due in August 2018 for a face value of $10.0mn, but which had a cost of $8.7mn and a new senior facility, entered into safter the Company filed Chapter 11 in May 2018. The second loan, which is a Debtor In Possession (DIP) facility, has a cost of $1.0mn, but a par value of $3.6mn, and matures in 2019.

According to comments made by MRCC management on both the first quarter and second quarter 29018 Conference Call, the bankruptcy of Gibson was not unanticipated. The apparent thesis was that the debt - following a bankruptcy settlement - might trade back to book value, resulting in both an Unrealized and Realized Gain. At June 30, 2018 the DIP facility was valued at $1.087mn and had a cost of $0.966mn. Presumably if repaid at par MRCC would book the difference in future quarters between $1.087mn and $3.600mn.Likewise, if the 2018 Senior Loan is repaid at par, MRCC might book a gain equal to the difference between the $10.00mn par value and its latest value of $8.491mn. That's just the BDC Credit Reporter's surmise. We note that Advantage Data records show the debt trading at $0.87 on the dollar.

In any case, until the bankruptcy process is fully settled and the debt repaid/refinanced, MRCC is not incurring any income on the 2018, or $0.888mn per annum, which impacted IIQ 2018 results and is likely to impact the IIIQ and some portion of IVQ 2018.

If matters meet our expectations, this should turn out to be a successful "special situation" venture for MRCC. Already, the BDC accelerated a substantial amount of original issue discount (OID) in the Term Loan in the IQ 2018 results. At worst, we don't envisage MRCC incurring any loss unless there is some new, negative, development. From our reading questions remain about the viability of the underlying business over the long term, but our information is very sparse and relies heavily on a July 23, 2018 Digital Music News article. That may be academic for MRCC and the BDC sector if the current debt is repaid in the IVQ of 2018. A new CEO was appointed on October 24, 2018 - as well as other senior managers - suggesting the Company is ready for its next act. Bankruptcy is set to end November 1.(Updated October 24, 2018).